He knew, of course. They quickly recapped.
Could I actually veto it? Obama asked, adopting his law professor manner. What would happen on the day of the veto? The day after?
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“It would have massive effects,” Geithner said. Treasury had to conduct a bond auction in the open market in about five days, the regular Tuesday auction, with settlement on Thursday. That first auction could be a kind of tripwire, setting off a chain reaction. The federal government couldn’t pay its bills. “Why would anyone buy U.S. bonds if it’s an open question whether we are going to have the authority to pay for them?”
Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”
The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.
“So,” the president said, “if we give $1.2 trillion now in spending cuts” — the amount in the House bill to get the first increase in the debt ceiling for about six to nine months — “what happens next time?” The Republicans would then come back next year, in the middle of the presidential campaign, and impose more conditions on the next debt ceiling increase. He could not give the Republicans that kind of leverage, that kind of weapon. It was hostage taking. It was blackmail. “This will forever change the relationship between the presidency and the Congress.
“Imagine if, when Nancy Pelosi had become speaker, she had said to George W. Bush, ‘End the Iraq war, or I’m going to cause a global financial crisis.’ ”
So, Obama said, they had to break the Republicans on this. Otherwise, they would be back whenever it suited them politically.
They were out of options, Geithner said. The only one might be accepting the House bill, loathsome as it might be. “The 2008 financial crisis will be seen as a minor blip if we default,” he said.
The president said, “The Republicans are forcing the risk of a default on us. I can’t stop them from doing that. We can have the fight now, or we can have the fight later on, but the fight is coming to us.”
So, no, Obama said, he was not going to cave. Period. He said good night, got up and left. He was very agitated.
Geithner thought there was one other consideration. He did not mention it to anyone, not even the president, but he had thought about it a great deal. It was not just that Obama faced an economic choice or a political choice. He faced a moral choice.
The president should not put himself in the position of saying unequivocally that he would veto, Geithner concluded, for one simple reason: No one could be sure how to put the American or the global economy back together again. The impact would be calamitous.
“And the people who would bear the pain of that would be the people less prepared,” Geithner told others, “less able to absorb that cost. It would be something you could not cure. It is not something you can come back and say, a week later, ‘Oh, we fixed it.’ It would be indelible, incurable. It would last for generations.”
Obama never had to confront the veto question. A few days later, House Republicans dropped their insistence on the two-step plan. The final plan accepted a debt limit increase that would take the country through the 2012 presidential contest. It also postponed $2.4 trillion in spending cuts until early 2013.
The long-term deficit crisis had not been solved, but merely put off, leaving the United States at the edge of the fiscal cliff, where it remains today.
Rob Garver and Evelyn Duffy contributed to this report.
Adapted from “The Price of Politics,” by Bob Woodward
to be published on Tuesday by Simon & Schuster.
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